Author Topic: BAM - Brookfield Asset Management  (Read 512041 times)

John Hjorth

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Re: BAM - Brookfield Asset Management
« Reply #700 on: October 02, 2018, 03:20:23 PM »
Again, chrispy,

Where are the facts as basis for your last post?
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bizaro86

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Re: BAM - Brookfield Asset Management
« Reply #701 on: October 02, 2018, 08:12:07 PM »
John - While I know you prefer to impose your own order on this board, I'm not really seeing the issue with his post?

Are you questioning whether BAM management owns the majority of their stake through a holdco, which appeared to me to be his only claim? I would say that has been well discussed here. If you believe that it needs a citation, I can provide it for you on his behalf.

The management information circular has the details of each director's holdings: https://www.investorx.ca/Doc/VV86DUDU6FB/2018/05/15/brookfield-asset-management-inc/management-information-circular-english

They separate their direct stakes from stakes held through Partners Value (the holdco he mentioned)

Bruce Flatt, for example, owns 8.4 MM shares directly/indirectly, while he effectively owns 31.6 MM shares held through Partners. So his stake is much larger through the holdco.

Back to the topic that caused the comment - they could collapse the holdco discount at partners instantly if they wanted by distributing the shares to the owners on a pro-rata basis (that would be convenient/profitable for me!) but they don't. Given they don't at Partners where it would benefit them all directly and significantly, I doubt they'll do so at BAM any time soon. 

John Hjorth

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Re: BAM - Brookfield Asset Management
« Reply #702 on: October 03, 2018, 03:18:06 AM »
Well, for a spin-off/break-up scenario to actually happen, it requires Mr. Flatt & his team to change their mind, ref. what I have already quoted Mr. Flatt for. I personally consider that as unlikely as a break-up of Berkshire. It's about the most important asset inside the Brookfield sphere, that you don't find in the consolidated BAM balance sheet, while it actually saturates everything in the sphere: Client relations. I personally think it's important for the clients to know that they are in the same boat as their asset manager. One starts tinkering with that if you break up the whole structure, I think.
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cubsfan

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Re: BAM - Brookfield Asset Management
« Reply #703 on: October 03, 2018, 04:49:40 AM »
Well, for a spin-off/break-up scenario to actually happen, it requires Mr. Flatt & his team to change their mind, ref. what I have already quoted Mr. Flatt for. I personally consider that as unlikely as a break-up of Berkshire. It's about the most important asset inside the Brookfield sphere, that you don't find in the consolidated BAM balance sheet, while it actually saturates everything in the sphere: Client relations. I personally think it's important for the clients to know that they are in the same boat as their asset manager. One starts tinkering with that if you break up the whole structure, I think.

I think this is correct - you can see Flatt has great respect for Berkshire and Buffett, one of the few firms Buffett has done JV's with.
BAM's alignment with shareholders and clients alike is under appreciated - they will do what is right for both.

Jerry Capital

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Re: BAM - Brookfield Asset Management
« Reply #704 on: October 03, 2018, 05:15:46 AM »
This thread completely misses the point.

BAM uses the LP subs as permenant capital resulting in perpetual fee streams. They did the same thing with TERP. This should eventually translate into a higher multiple on the fee stream than traditional buy/fix/sell private equity multiples.

They would never buy back or spin their LP units in their entirety. They may reduce ownership. The key to the structure is the alignment of the asset management business with the LPs and the private capital (i.e. BAM investing alongside private capital and LP capital).

As for the discount to NAV. It is nice to have but is only a small part of a thesis of long-term compounding of "long-life/real assets" and a high margin asset management business with more operating leverage left in the model.

As for BPY they are buying those units because they think they are undervalued, not for financial engineering reasons or as a hope to reduce the discount to NAV.

Thinking about "closing the discount" is extremely short-term thinking.
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Packer16

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Re: BAM - Brookfield Asset Management
« Reply #705 on: October 03, 2018, 06:05:20 AM »
I disagree that reducing the discount is about short term thinking.  This discount is going to be around as long as the structure is the way it is & is dead weight loss for everyone involved.  Now if the discount was 5 to 10% I would agree this is not a factor but the magnitude of the discount is an important factor.  Especially when part of your strategy is to buy LP units at 100 & the market will only value them at 70 when you hold them. 

BAM can do the spins of the LPs & selectively purchase LPs when they think they think they are cheap & spin them off at some time in the future.  Management can also maintain their ownership of the LP interests they now have in direct interests which will have a higher value.  The reason why these structures make sense for others is to maintain control but Brookfield has control via the GPs.  What is point of holding the LPs in BAM if they can retain control of the LP assets via the GP (and thus access to permanent capital) & retain management ownership/incentive of some of the funds directly?  I just do not see the benefits as all the benefits folks have been discussing can be retained via an LP spin-off with a reduced discount.  There would have to be some explanation but I think clients & investors would understand the economics have not changed but the structure has to increase everyone's value.

Maybe I am missing something about how the GP/LP structure works.  Can the LPs remove Brookfield as the GP if a certain number of LP units vote to remove them?  I do not think so.

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KJP

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Re: BAM - Brookfield Asset Management
« Reply #706 on: October 03, 2018, 06:17:01 AM »
I disagree that reducing the discount is about short term thinking.  This discount is going to be around as long as the structure is the way it is & is dead weight loss for everyone involved.  Now if the discount was 5 to 10% I would agree this is not a factor but the magnitude of the discount is an important factor.  Especially when part of your strategy is to buy LP units at 100 & the market will only value them at 70 when you hold them. 

BAM can do the spins of the LPs & selectively purchase LPs when they think they think they are cheap & spin them off at some time in the future.  Management can also maintain their ownership of the LP interests they now have in direct interests which will have a higher value.  The reason why these structures make sense for others is to maintain control but Brookfield has control via the GPs.  What is point of holding the LPs in BAM if they can retain control of the LP assets via the GP (and thus access to permanent capital) & retain management ownership/incentive of some of the funds directly?  I just do not see the benefits as all the benefits folks have been discussing can be retained via an LP spin-off with a reduced discount.  There would have to be some explanation but I think clients & investors would understand the economics have not changed but the structure has to increase everyone's value.

Maybe I am missing something about how the GP/LP structure works.  Can the LPs remove Brookfield as the GP if a certain number of LP units vote to remove them?  I do not think so.

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I don't think your post addresses the argument some people are making that ownership of LP units (appears to) align BAM with LP unitholders, making the LP itself a more attractive investment for third party investors. 

Packer16

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Re: BAM - Brookfield Asset Management
« Reply #707 on: October 03, 2018, 06:37:11 AM »
What you really want aligned with the LPs is BAM management, the other BAM shareholders are along for the ride.  This can be done with them holding direct interests in the LPs which would be spun-off to them in the LP spin-off from BAM.  Going forward management would have to add to their LP holdings in current proportions held by BAM versus just holding BAM but I think this would be a calculation & would have a much smaller economic effect than a 30% discount on the value of the LPs held by BAM.  As a shareholder you could tailor you mix of LPs to your taste. 

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« Last Edit: October 03, 2018, 07:34:08 AM by Packer16 »

vince

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Re: BAM - Brookfield Asset Management
« Reply #708 on: October 03, 2018, 07:57:05 AM »
Bizaro, can u tell us what the partners value discount is and a quick way to determine it ?

Spekulatius

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Re: BAM - Brookfield Asset Management
« Reply #709 on: October 03, 2018, 08:01:05 AM »
Quote
Maybe I am missing something about how the GP/LP structure works.  Can the LPs remove Brookfield as the GP if a certain number of LP units vote to remove them?  I do not think so.

I believe it is possible and has occurred, but is a rare occurrence. I believe it can occur when the fiduciary duty if the GP is breached and may depend on the partnership agreement. In any case, the hurdle is very high for the LP’s to remove the GP.
« Last Edit: October 04, 2018, 03:27:48 PM by Spekulatius »
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